2011 (6) TMI 713 - HC - VAT and Sales Tax

Whether, in the facts and circumstances of the case, the Sales Tax Appellate Tribunal was right in law for application of the formula on the ground of non-maintenance of day to day stock book for the purpose of making best judgment assessment under section 12(2) of the Act? Held that - The assessing officer is justified in restricting the claim of exemption on second sales and levying tax on the turnover of ₹ 6,97,542 and is based on valid materials and evidence and we do not find any error or illegality in the order of the Tribunal to interfere with the finding restricting the exemption in respect of the turnover by adopting the formula and restricting the claim of second sales. In respect of penalty, the Tribunal is not correct in levying penalty of ₹ 43,945 for the assessment year 1993-94 because certain discrepancies was found by the assessing officer in adopting the formula and made addition. It is also seen from the records that the figures and other things are taken from the account books only, otherwise the addition is made only on the estimation and therefore, we are of the view that it is not a fit case for levying penalty since the authorities restricted the claim by adopting formula and not as a concrete basis. We answer the question in favour of the assessee and against the Revenue and the appeal is allowed.

Issues:
1. Application of formula for best judgment assessment under section 12(2) of the Act.
2. Maintenance of stock registers and inventory for inter-State purchases.
3. Disallowance of exemption on second sales.
4. Levying penalty under section 12(3)(b)(ii) of the Act.

Analysis:
1. The revision was admitted to determine whether the Sales Tax Appellate Tribunal was correct in applying a formula due to the non-maintenance of day-to-day stock book for best judgment assessment under section 12(2) of the Act. The petitioner, a dealer in bearings, reported a total turnover of &8377; 73,58,971 and a taxable turnover of &8377; 19,60,214 for the relevant assessment year 1993-94. The assessing officer found that the petitioner had not maintained stock registers for inter-State purchases and lacked inventory details for opening and closing stock, leading to the application of a formula to determine turnover and levy a penalty under section 12(3)(b)(ii) of the Act.

2. The Tribunal confirmed that the petitioner failed to maintain stock registers for inter-State purchases and lacked inventory details despite filing separate information for taxable/second sales items. The inspection revealed mingled local and inter-State purchase items without proper identification. The Tribunal upheld the assessing officer's decision to use the formula for assessment due to the absence of inventory or bill-wise details for stock reconciliation. Consequently, the Tribunal deemed the assessing officer's actions justified in restricting the claim of exemption on second sales and levying tax based on valid evidence, finding no error or illegality in the decision.

3. The petitioner contended that the assessing officer's use of the formula was incorrect, emphasizing the accurate reporting of first and second sales figures. The Tribunal, however, upheld the assessing officer's decision, noting discrepancies in the trading account that indicated inaccurate reporting by the petitioner. The Tribunal's findings supported the assessing officer's restriction of the claim of exemption on second sales, based on the defects identified during inspection and the lack of proper stock maintenance by the petitioner.

4. Regarding the penalty levied under section 12(3)(b)(ii) of the Act, the Tribunal's decision to impose a penalty of &8377; 43,945 for the assessment year 1993-94 was deemed incorrect. The Tribunal acknowledged discrepancies in the assessing officer's adoption of the formula for additions but noted that the figures were derived from account books, not mere estimations. As the penalty was based on the formula adoption and not concrete evidence, the Tribunal concluded that it was not justified to levy a penalty in this case. Consequently, the Tribunal ruled in favor of the petitioner, allowing the appeal and rejecting the penalty imposition.

In conclusion, the High Court Madras upheld the petitioner's appeal, finding in favor of the assessee against the Revenue, setting aside the penalty and confirming the decision on the application of the formula for assessment under section 12(2) of the Act.

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